What Is Gen-Saki?
Gen-saki is a secondary bond market in Japan, also known as a repo market for its similarity to repurchase agreements. Gen-saki trading involves the buying or selling of bonds with a deal to buy or sell them back after a specified period.
Gen-saki translated into English means “present” (gen) and “future” (saki). Gen-saki is used for the purchase and resale of medium-term and long-term corporate and government bonds. The gen-saki market evolved in the 1950s because there was no secondary market in Japan for treasury securities issued by the Bank of Japan. Gen-saki is open to corporations and financial institutions. Until 1979 it was also open to foreign investors in 1979. Gen-saki transactions are available for any maturity dates up to one year, but most agreements are within three months or less. When setting the gen-saki rate, the yen London interbank offered rate (LIBOR) is often the basis, because it accurately reflects the deposit market rate.
The move toward gen-saki trading in Japan represents a step toward the international standard in repurchase agreements. Traditionally, Japan had used a “gen-tan” repurchase model, which uses cash as lending and borrowing collateral. The gradual move toward gen-saki trading in Japan is improving market efficiency and shortening the settlement cycle. Many believe its adoption, fueled by advancing technology, represents a significant growth opportunity and could result in future structural changes in Japan’s money markets.
Examples of ‘Gen-Saki’ Transactions
Three categories of gen-saki transactions exist: own-account, consignment and direct. When a securities firm sells a bond with a repurchase agreement for funding, it's called an own-account transaction. In 1978, restrictions were placed on the amount of total outstanding own-account gen-saki. These regulations were placed in order to protect the gen-saki market and encourage proper oversight by the securities firms.
Repurchase agreements in which bondholders who are not a securities firm conduct a gen-saki transaction through a securities firms are known as consignment gen-saki. In a consignment gen-saki transaction, the borrower sells the security with a repurchase agreement to a securities firm. Then, the securities firm resells the security to an outside purchaser.
A direct gen-saki transaction is between a bank or other financial institution with surplus funds and a buyer, which could be a corporate business.